How far back can the Department go in digging up assessments, asks S. Murlidharan

THE assessing officer (AO), if he has reason to believe that any income might have escaped tax, can dig into the past. But how far back can he go?

Section 147, which arms him with this power of reassessment or reassessment of reassessment, draws the Lakshman rekha, as it were.

It says that if for the relevant assessment year, scrutiny assessment or reassessment or reassessment of reassessment has already been done, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year unless the reason for escapement of tax can be attributed to failure on the part of the assessee to come clean or cooperate with the Department.

Given the fact that putting the assessee in the doghouse is the easiest thing for the Department, effectively the Department can reach out to income of any antiquity.

But Section 149 (1), shabbily couched as it is, queers the pitch for the Department. The relevant portion of it reads as follows:

"No notice under Section 148 shall be issued for the relevant assessment year:

"a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause;

"b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year."

A combined reading of Sections 147 and 149 leaves one confused. Both of course are clear about one thing  the norm is four years. Where they strike a discordant note is the exception carved out.

Section 147 would have one believe that the Department can break free of the four-year time restriction if it can prove obstinacy or dishonesty on the part of the assessee irrespective of the quantum of income that has or is likely to have evaded tax.

But Section 148 would set him rethinking  the four-year restriction can be broken free only if the evaded income is or is likely to be more than Rs 1 lakh subject to the condition that in any case the Department cannot go backwards beyond six years. Which one is right?

If Section 147 were to be read independent of Section 149, there is no time-restriction at all if the Department can prove dishonesty or obstinacy or both on the part of the assessee.

If it, however, were to be read in conjunction with Section 149, as it ought to be, it would appear that the right conferred by Section 147 is circumscribed by the following three restrictions and not just one:

a) dishonesty or obstinacy on the part of the assessee;

b) the tax evaded income being more than Rs 1 lakh; and

c) Bar on traversing back beyond six years.

Incidentally, it may be pointed out that clause (b) of Section 149 (1) needs to be redrafted as follows to convey its true intention:

"... if more than four years, but not more than six years, have elapsed from the end of the relevant assessment year and the income chargeable to tax which has escaped assessment amounts to or is likely to amount to Rs 1 lakh or more for that year."